Macroeconomics LESSON 3 ACTIVITY 23

Transcription

1 Macroeconomics LESSON 3 ACTIVITY 23 An Introduction to Aggregate Demand Part A Why Is the Aggregate Demand Curve Downward Sloping? Figure 23.1 Aggregate Demand Curve 1. According to the curve, what is the relationship between the price level and real GDP? 2. Explain how each of the following effects helps explain why the curve is downward sloping. (A) Interest rate effect (B) Wealth effect or real-balance effect (C) Net export effect Activity written by John Morton, National Council on Economic Education, New York, N.Y. Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York, N.Y. 123

2 MacroeconomicsLESSON 3 ACTIVITY 23 (continued) 3. In what ways do the reasons that explain the downward slope of the curve differ from the reasons that explain the downward slope of the demand curve for a single product? Part B What Shifts the Aggregate Demand Curve? Figure 23.2 Shifts in Aggregate Demand A B C 4. Using Figure 23.2, determine whether each situation below will cause an increase, decrease or no change in. Always start at curve B. If the situation would cause an increase in, draw an up arrow in column 1. If it causes a decrease, draw a down arrow. If there is no change, write NC. For each situation that causes a change in aggregate demand, write the letter of the new demand curve in column 2. Move only one curve. 124 Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York, N.Y.

3 MacroeconomicsLESSON 3 ACTIVITY 23 (continued) Situation 1. Change in 2. New Curve (A) Congress cuts taxes. (B) Autonomous investment spending decreased. (C) Government spending to increase next fiscal year; president promises no increase in taxes. (D) Survey shows consumer confidence jumps. (E) Stock market collapses; investors lose billions. (F) Productivity rises for fourth straight year. (G) President cuts defense spending by 20 percent; no increase in domestic spending. Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York, N.Y. 125

4 Macroeconomics LESSON 4 ACTIVITY 24 An Introduction to Short-Run Aggregate Supply Part A Why Can the Aggregate Supply Curve Have Three Different Shapes? Figure 24.1 Possible Shapes of Aggregate Supply Curve 1. Under what conditions would an economy have a horizontal curve? 2. Under what conditions would an economy have a vertical curve? 3. Under what conditions would an economy have a positively sloped curve? Activity written by John Morton, National Council on Economic Education, New York, N.Y. Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York, N.Y. 127

5 MacroeconomicsLESSON 4 ACTIVITY 24 (continued) 4. Assume increased. What would be the effect on real GDP and the price level if the economy had a horizontal curve? A positively sloped curve? A vertical curve? 5. What range of the curve do you think the economy is in today? Explain. Part B What Shifts the Short-Run Aggregate Supply Curve? Figure 24.2 Shifts in Short-Run Aggregate Supply A B C 6. Using Figure 24.2, determine whether each situation below will cause an increase, decrease or no change in short-run aggregate supply (). Always start at curve B. If the situation would cause an increase in, draw an up arrow in column 1. If it causes a decrease, draw a down arrow. If there is no change, write NC. For each situation that causes a change in, write the letter of the new curve in column 2. Move only one curve. 128 Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York, N.Y.

6 MacroeconomicsLESSON 4 ACTIVITY 24 (continued) Situation 1. Change in 2. New Curve (A) Unions grow more aggressive; wage rates increase. (B) OPEC successfully increases oil prices. (C) Labor productivity increases dramatically. (D) Giant natural gas discovery decreases energy prices. (E) Computer technology brings new efficiency to industry. (F) Government spending increases. (G) Cuts in tax rates increase incentives to save. (H) Low birth rate will decrease the labor force in future. (I) Research shows that improved schools have increased the skills of American workers and managers. Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York, N.Y. 129

7 Macroeconomics LESSON 5 ACTIVITY 25 Short-Run Equilibrium Price Level and Output Part A Equilibrium Figure 25.1 Equilibrium Price and Output Levels P 2 P P 1 Y 1. What are the equilibrium price level and output? 2. What would eventually happen to the price level and output if the initial price level were P 2 rather than P? Why would this happen? 3. What would eventually happen to the price level and output if the initial price level were P 1 rather than P? Why would this happen? Activity written by John Morton, National Council on Economic Education, New York, N.Y., and James Stanley, Choate Rosemary Hall, Wallingford, Conn. Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York, N.Y. 131

8 MacroeconomicsLESSON 5 ACTIVITY 25 (continued) Part B Changes in the Equilibrium Price Level and Output For each situation described below, illustrate the change on the and AS graph and describe the effect on the equilibrium price level and real GDP by circling the correct symbol: for increase, for decrease, or for unchanged. 4. Congress passes a tax cut for the middle 5. During a recession, the government class, and the president signs it. increases spending on schools, highways and other public works. Middle Class Tax Cut Increased Government Spending Price level: Price level: Real GDP: Real GDP: 6. New oil discoveries cause large decreases 7. Illustrate the effects of an increase in aggregate in energy prices. demand. New Oil Discoveries Effects of an Increase in Price level Price level Real GDP Real GDP 132 Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York, N.Y.

9 MacroeconomicsLESSON 5 ACTIVITY 25 (continued) 8. Illustrate the effects of increases in 9. New technology and better production costs. education increase productivity. Effects of Increases in Production Costs Price level Price level Effects of New Technology and Better Education Real GDP Real GDP 10. A new president makes consumers and 11. With the unemployment rate at five businesses more confident about the percent, the federal government future economy. Note: Show the reduces personal taxes and increases change in only. spending. Note: Show the change in only. Increased Confidence for Future Economy Reduced Taxes and Increased Government Spending LRAS Price level Price level Real GDP Real GDP Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York, N.Y. 133

10 MacroeconomicsLESSON 5 ACTIVITY 25 (continued) Part C Summarizing Aggregate Demand and Aggregate Supply Shifts For each of the events below, make additions to the graph to illustrate the change. Then indicate the response in terms of shifts in or movements along the aggregate demand or aggregate supply curve and the short-run effect on real GDP and the price level. Indicate shifts in the curve by S and movements along the curve by A. Indicate the changes in price level, unemployment and real GDP with an up arrow for an increase and a down arrow for a decrease. 1. Increase in labor productivity due to technological change 2. Increase in the price of inputs used by many firms 3. Boom in investment assuming some unemployed resources are available 4. A major reduction in investment spending Curve AS Curve Real GDP Price Level Unemployment 134 Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York, N.Y.